Banks steer customers towards credit cards

According to the latest data from Visa, more people are starting to use credit cards, not for the line of credit, but as they would a debit card. And this is just what the banks are hoping for.

Visa reported for its fourth quarter that spending on Visa-branded credit cards in the U.S. grew faster than debit cards. The initial driver may have been punitive debit pricing, and even though that strategy failed to stick, one could argue that it did accomplish getting consumers to consider other payment options including credit cards.

Banks are increasingly promoting credit over debit in the face of shrinking debit Interchange. Both credit and prepaid cards are exempt from the recently imposed Fed regulated debit Interchange fee caps. To maximize Interchange fee income, banks will try to move those with good to excellent credit to conduct transactions with reward credit cards while moving those with poor credit to prepaid.

With debit Interchange regulations in place, we can expect to see card issuers offering more compelling reward programs as an incentive to steer consumers to reach for their credit card and abandon debit cards. And it appears that more consumers are looking to take advantage of these rewards by buying everything with a credit card and then use their new found payment discipline to pay off the balance at the end of month.

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